Stock Market with Positive Signs

In particular, some companies saw their profits down in 2005 but had their stock prices increase sharply. For example, Savimex saw its profits falling by 10.8 per cent but its stock prices increased by 23.5 per cent and HTV had its profits down by 1.09 per cent but its stock prices rising by 25.2 per cent. What are the reasons for this and will the trend last for a long time?

 

Many financial experts say that information on the local media and from securities traders about a huge amount of foreign investment would flow into the Vietnamese stock market soon has stimulated the demand for stocks among local individual investors. As a result, the number of accounts opening at securities companies doubled in the first two months of 2006, while the accounts’ balance was 2.5 times higher than the year-end months of 2005.

 

Some local economic newspapers reported that the Vietcombank Fund Management Company, which was set up in mid-January 2006, had established its member fund (VPF1) with a total capital of US$12.5 million. By late February 2006, the fund had received 65 per cent of its charter investment capital. It will have its capital received fully in the second quarter 2006.

 

There have also been reports about the formation of bigger funds. For example, in early February 2006, the joint-venture fund manager BIDV-Vietnam Partners launched its Vietnam Investment Fund, capitalised at US$100 million or in early 2006, the Vietnam Opportunity Fund of the UK increased its capital by US$76 million, bringing its total investment capital to US$171 million. This figure is expected to rise to US$250 million. Mekong Capital is preparing to set up its second fund, valued at US$40 million.

Also, local media quoted foreign sources as talking about attractive information. For example, Meryll Lynch had forecast an increase of 29.8 per cent of listed companies in Vietnam in 2006, the highest in Asia.

 

However, the amount invested by foreign funds in the Vietnamese stock market would not as high as it had been reported to many local investors. Foreign professional investment management funds are experienced and cautious when investing in stocks, especially stocks of companies whose financial information is not transparent enough.

 

Another risk for investors who are buying stocks at high prices is that their stocks may see a sharp drop in value due to a possible increase in the supply sources when many corporations are equitised in 2006 and 2007. These include commercial banks, telecommunication companies, electric power plants, water supply and oil companies. The ever seen biggest supply may lead to a sharp drop in prices of listed companies.

 

The Vietnam Association of Financial Investors (VAFI) has recently submitted a programme on generating goods for the stock market to the Government. Accordingly, VAFI proposed a list of 11 large-sized enterprises and corporations with famous trademarks for instant listing after equitisation.

 

Among these 11 enterprises, five have been approved for equitisation. These include the Bank for Foreign Trade of Vietnam (Vietcombank), the Bank for Investment and Development of Vietnam (BIDV), Vinaphone, Mobiphone and Bao Viet Corporation. Five other enterprises, which have not yet been approved for equitisation, include the Hanoi Beverage Corporation, the Saigon Beverage Corporation, the Viet Tien Garment Corporation, the Dau Tieng Rubber Company, the Vietnam Shipping Company (VINASHIP) and the Nitrogenous Fertiliser and Petroleum Chemical Company.

 

According to VAFI, if the 11 enterprises complete their equitisation and listing on the stock market in 2006 and 2007, the Vietnamese stock market will see its value increasing to US$15 billion, or 15 times higher than the present value. The move will make a breakthrough in the development of the Vietnamese stock market, minimising risks for investors in the initial development period of the market. This is a decisive move to help the Vietnamese stock market reach ten per cent of GDP in 2010.

 

Despite plans to accelerate the equitisation of major enterprises and banks, the process is still slow and has experienced many changes. The steering boards on equitisation of Vietcombank and the Mekong Housing Bank (MHB) said that their equitisation plans would not be completed and submitted to the Prime Minister until October 2006.

 

At present, stock-taking, asset classification, financial settlement and consultancy company selection are on-going. Vietcombank has developed a list of 15 leading financial organisations in the world, providing consultancy services in asset evaluation and initial public offering before short listing three consultancy companies for the steering board to select.

 

The piloting of equitisation at Vietcombank and MHB will be conducted in three steps. In the first step, plans for equitisation will be developed. In the second step, shares will be sold and in the third step, the conversion of Vietcombank and MHB into joint stock banks will be completed. The equitisation will be implemented over 18 months and shares are expected to be sold in 2006.

 

By December 31, 2005, 2,600 State-owned enterprises had been equitised. If affiliates of enterprises are taken into account, the number of equitised enterprises stands at 2,900 but these were mainly small-sized enterprises with small capital amounts.